Health care RX: First, do no harm … so dump the bonuses!

After a grim year of failure after failure, Alberta’s spectacularly overpaid public health care executives are now collecting their colossal performance bonuses.

The management group now being rewarded for their efforts was put together after May 2008 when Alberta Premier Ed Stelmach’s Conservative government created Alberta Health Services to eliminate nine health regions that had grown too independent for the premier’s liking.

Stephen Duckett, an abrasive PhD economist from Australia, was hired to lead this effort – which was touted as a way to save money and improve service. But never mind the backstory. This is about the utility of paying big bonuses to public service managers.

So never mind that these bonuses, themselves many times the pay earned by the lowly front-line health care workers who actually care for the sick, are being paid on top of “corporate style” base salaries that are ludicrously large. (Mr. Duckett’s base pay: $595,000 this year. His bonuses and benefits: $149,000. Total: $744.000. Years a hospital housekeeper would have to work to collect Mr. Duckett’s annual salary: 21.)

After all, Albertans have pretty well all swallowed the ideological Kool-Aid that we must pay huge corporate style salaries to senior public servants to get the “best people for the job.” As Alberta Health Minister Gene Zwozdesky recently explained: “When you’re looking at keeping the good people that you have and recruiting more good people, skills, abilities and other expertise, you have to compensate them in order to attract them.”

And never mind that these AHS executives have taken a health care system that two and a half years ago was working reasonably well, at least in the Edmonton area, and reduced it to a shambles. (Remember H1N1?)

And never mind that this wrecking crew is costing us more, not less. This spring, the government had to step up with a bailout of more than three-quarters of a billion dollars to keep the whole provincial health care system from imploding like a Calgary hospital!

Which means, obviously, that these undeserved executive bonuses are being paid out of public bailout money!

And never mind Premier Stelmach’s promised salary review for health care executives – after all, this is Alberta. If this kind of thing is fine for Wall Street, we’re sure as hell not going to miss the chance to get in on the fun in the executive suite of Alberta Health Services.

Nope, never mind any of this stuff!

But do think about this: There is no evidence that giving bonuses to executives will improve their performance in any way!

There is some evidence, on the contrary, that bonusing executives will make their decisions worse, since they are bound to focus on whatever must be done to feather their own nests instead of on overall goals to improve the system. Moreover, since whatever “performance measures” you set are bound to contain perverse incentives to engage in harmful behaviour, some damage is likely to follow.

For example, if you make trimming jobs or costs a part of the executive bonus package, your executives are sure to trim, even if it proves harmful. So, to give a completely imaginary example, they might scratch out a scheme to close one of the world’s best psychiatric facilities on the back of a restaurant napkin and try to implement it the next morning.

Consider AHS’s current vice-presidents. In fiscal 2009-2010, they were told that improving patient care had the same importance as meeting budget targets. But improving care is hard and making cuts is easy, so guess what they did? Hint: every one of them got a bonus despite the fact they failed to meet their performance targets on measures of patient care. Why? Because they cut.

The areas they cut the most – emergency rooms, hip and knee surgeries, seniors’ influenza immunization rates, use of acute care beds – were where patient care suffered the most.

Indeed, studies show that performance bonuses are an ineffective way to enhance performance. For example, in 2003, the Academy of Management Journal published a review of 200 academic papers that compared stock bonuses with executive performance. Their conclusion? Bonuses had no effect on performance.

The next year, a survey of 350 companies by global human resources consulting firm Hewitt & Associates reported that 80 per cent of these organizations had concluded their pay-for-performance programs were only partly successful at best, and more likely did no good at all.

But business types, of course, influence other business types, so these unproductive, wasteful and usually harmful bonusing schemes were an easy sell to Ed Stelmach’s “Conservative” government. After all, these guys imagine themselves to be hard-nosed, clear-eyed businessmen. In fact, a pretty good case can be made that they are gullible chumps.

Having set out to find “the best people for the job,” they came up with something quite different. Now we Albertans are going to have to face up to the mess these “top people” have left.

It will be hard to know where to start. But here’s a thought, this being health care, we could begin by taking the advice that physicians give themselves: “First, do no harm…”

Since scandalous, counterproductive, bailout-financed executive bonuses are pretty obviously a recipe for harm, we should start by eliminating them.

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